Sir David Clementi, Author, The Clementi Report

Regulation is a public service. It should be carried out in the interest of the public, and be independent of representation of the profession. When lawyers are self-regulating, their focus is rarely on access to justice or other consumer outcomes. Their focus is on whether services are being provided at a high enough standard.

Sir David Clementi is a former governor of the Bank of England and is the author of the December 2004 “Review of the Regulatory Framework for Legal Services in England and Wales — Final Report,” otherwise known as “The Clementi Report.”

In 2003, Lord Chancellor Falconer had on his desk a paper prepared by his staff which concluded that the regulatory system for lawyers was confusing, that the complaint system needed overhaul, and that the legal profession was full of restrictive practices that worked against the consumer and in favor of the profession.

He asked me to prepare a report. I believe he selected me for two reasons:

The first reason was that I had experience of regulatory practices in other professions. I had been a regulator of the accountancy profession, I had sat on the board of the financial regulator for five years, and I had worked with the Bank of England on regulatory systems for many years.

The second reason was that I was not a lawyer. Falconer told me that the profession had little objectivity: There was a tendency to think that the profession is “very well run, because it is run by people like ourselves.”

If you review the history of English and Welsh law, about every 20 to 30 years there has been a major review of the regulatory system. But almost all of these reviews in the past had been done by lawyers; and these reviews tended to conclude that everything was basically fine, but we’ll have this little tweak and that little tweak.

In approaching the task, the first thing I did was to ask what questions needed to be answered. I concluded that the three questions were:

1) What would be a better regulatory system than the confusion we have now?

2) How can we improve the complaints system?

3) How can we remove barriers to competition, and notably what are the arguments for and against more liberalized legal practices?

In a consultation paper published in March 2004, I developed two or three possible answers for each question. It was important to do it this way. If you just throw questions out without suggesting answers, you will get a number of unrelated responses that are hard to analyze.

I thought it was important to provide sensible suggestions. And there were a limited number of models that could be adopted. This is why in my consultation paper, I talked about “Model A,” “Model B” and “Model B+”. I made sure that the debate occurred on concrete terms. Not because I wanted to dictate, but because I wanted to stop suggestions coming from left field — suggestions that might be intellectually very interesting but in reality completely impractical. It was important to be practical — to think about things that were possible and could actually work and that ministers might accept, because at the end of my report ministers might have said “great report” but done nothing about it.

I set out my questions and proposed answers in a consultation paper and asked a variety of people to respond. The consultation paper went to the professional bodies themselves — the Law Society, the Bar Council, the Institute of Trademark Attorneys etc. But that was a minimum. I also asked the key consumer groups and other consumer advocates to submit their opinions. In particular I worked closely with the Citizens Advice Bureau since they had a lot of experience with individuals coming into their offices seeking legal advice.

Prior to the Clementi Report, the Law Society and the Bar Council carried out both representative and regulatory functions. But in other industries in the UK it was felt that, whilst providers could represent themselves, they were not good at regulating themselves:  that banks couldn’t regulate banks, that brokers couldn’t represent brokers — that self-regulation, in financial services as well as other services, did not work well and that the days of self-regulation were over. Lawyers seemed to agree with that, for all areas except their own.

I argued that regulation is a public service. It should be carried out in the interest of the public, and be independent of representation of the profession. When lawyers are self-regulating, their focus is rarely on access to justice or other consumer outcomes. Their focus is on whether services are being provided at a high enough standard. Lawyers did not like it when I recommended the end to self-regulation, but today they have more or less accepted it.

In my opinion, a good regulator needs to start with a clear set of regulatory objectives, and needs to design a regulatory system that meets those objectives; objectives such as maintaining rule of law, access to justice, assuring consumer outcomes, promotion of competition.

I came from a system in which the regulator had regulatory objectives, and was held accountable against them.

For example, I considered a regulatory objective regarding access to justice was important. In the absence of this, the fear was that legal services, particularly in the area of litigation, would be available only to the very rich and the very poor. Many of the lawyers I spoke with thought that was normal — that that was simply the way it was. But it does not have to be that way, and it is important for a regulator to have an objective to make legal services easily accessible.

For this reason, the 2007 Legal Services Act, based on my report, contains regulatory objectives. They didn’t exist for the legal profession in England and Wales before that.

In preparing the report, I spent some time in Australia, as did members of my staff, so that we could observe how it worked there. What we took away from New South Wales in Australia was that my proposals were not completely on their own; and that I was not proposing something that simply didn’t work.

Many lawyers objected to my proposals about outside ownership, arguing that the profit motive ran contrary to the proper objectives of running a legal practice. But I argued that in running a business, you need to make a proper rate of return. Lawyers like to think that making money is a happy by-product of providing good legal service. It’s nonsense. My experience is that lawyers are as keen as anyone else to make money. And, in any event, if you don’t make money, you are going to go out of business.

When I looked at the complaints made by the man in the street, they were almost always about service level issues. For example: “He didn’t return my phone call.”  “He didn’t file a paper on time.”  Complaints by the man on the street were rarely about legal issues.

I argued that if someone was good at business, then why should that person be precluded from owning a legal business? Of course legal advice needs to come from lawyers. But why does the firm itself have to be owned by lawyers?

I’ve never said that legal advice should be given by a nonlawyer. I’ve simply asked: Who should employ them? Who should provide them with an office? Who should be sure the invoicing is done properly? Who determines what lease the office should have? Who determines business process?  Does all of that have to be done by lawyers? The people who do these things are important people and there is no reason why they should not be in partnership with the lawyers providing the legal advice itself, and no reason why they should not share in the equity alongside lawyers.

I stressed in my report that I had no problem with lawyers who would like to practice in traditional structures. I never said that you must practice in the form of an alternative structure; I merely said that you may. I never said that you must make your finance director a partner; I merely said that you may. I believe there is an important place for traditional structures such as partnerships. What I object to is the suggestion that it cannot be done in any other way. It is a restrictive practice, and a profession should have to justify restrictive practices. I simply couldn’t find a justification for it.

Hospitals are rarely owned and run by doctors — that doesn’t mean that medical services at the hospital are provided by unqualified people. It is a professional conceit to believe that only lawyers can own and operate law firms. It is as basic as that.

This story is supplemental material for Democratizing Legal Services: Obstacles and Opportunities and Modernizing Legal Services in Common Law Countries: Will the US Be Left Behind? To learn more about these books, please click here and here.

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